Saudi Electricity Company - GulfBase.com
Saudi Electricity Company Just a dividend play MAY 2011
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SEC: Investment Summary (1/2) Earnings lack growth; an attractive dividend play
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UNDER PERFORM
RATING Target Price (SAR)
13.07
Upside
-4.2%
Price (15 May 2011)
13.65
Market Cap. (SAR Bn)
56.9
Market Cap. (USD Bn)
15.2
Shares Outstanding (Mn)
4167
Price 52wk H/L
15.6 / 10.5 SECO AB
Ticker (Reuters)
5110.SE
SEC
Jan-09
Robust growth in electricity demand in KSA • Demand is estimated to grow at 5.3% per annum over 2011-18 (8.1% CAGR during 2004-10), driven by rising per capita electricity consumption on account of young and growing population (60% below the age of 30) and declining size of households, and increasing industrial activity • However, capacity has failed to match growth in peak demand. To meet the peak load demand of 65 GW in 2018, KSA needs to grow its generation capacity by 50% from 48 GW in 2010 to 72 GW by 2018
Ticker (Bloomberg)
210 190 170 150 130 110 90 70 50
INVESTMENT POSITIVES AND RISKS >
Increase in electricity sales is the main growth driver • The tariff hike (in June 2010) is expected to boost revenues (we estimate incremental revenue of SAR3.6Bn) and profitability (130 bps improvement in gross margin) in 2011 • In the long term, sales are likely to drive growth. We see SEC’s top line growing 11.9% in 2011, 6.0% in 2012 and at 4.2% CAGR in 2013-20 Beyond 2011, higher operating expenses to dent profitability • Operating margin is forecast to improve from 6.5% in 2010 to 7.3% in 2011, buoyed by tariff hikes, but then decline to 5.4% in 2012 and to 3.7% by 2020 due to higher purchased energy cost (as more energy will be bought instead of being generated internally) and higher depreciation expense as capacity is expanded
Tadawul
• We expect net income to peak in 2011 (SAR2.8Bn) and decline at a rate of 1.5% during 2012-20
Aug-09
Source: Bloomberg
Mar-10
Oct-10
May-11
Dividends provide stable and high yield making SEC an attractive dividend play • SEC’s debt ratings are equivalent to that of the Saudi Government, which owns 81% stake in SEC. The government has also waived its rights to the company’s dividends up to 2020 • With less shares entitled to receive dividends, public shareholders receive SAR0.7 DPS (against SAR0.13 in case of no waiver), leading to the highest dividend yield (5.1%) amongst SEC’s peers 2
SEC: Investment Summary (2/2) Expensive valuation limits upside
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VALUATION APPROACH
UNDER PERFORM
DCF approach
14.81
P/E approach
9.35
EV/EBITDA approach
13.32
Weighted average target price
13.07
FY10A
FY11F
FY12F
EPS (SAR)
0.55
0.66
0.55
P/E (x)
25.0
20.6
24.8
EBITDA (SAR Bn)
10.2
11.8
12.2
9.7
8.4
8.1
MULTIPLES
EV/EBITDA (x)
STOCK VALUATION > The stock appears expensive at current levels, given that tariff hikes are factored into the current price, and SEC is trading at a premium to its peer group At current multiples, SEC trades at a P/E of 24.9x, a premium of 44.4% versus the peer group average of 17.3x, and EV/EBITDA of 9.3x, a discount of 3.4% versus the peer group average of 9.6x On forward multiples, SEC trades at 20.6x FY11E P/E, a premium of 38.7% versus the peer group average of 14.8x FY11E P/E, and 8.4x FY11E EV/EBITDA, a premium of 3.5% versus the peer group average of 8.1x FY11E EV/EBITDA
Our DCF, P/E and EV/EBITDA based valuation returns a weighted average target price of SAR13.07 (4.2% downside at the current level) SEC’s stable dividend payout and high dividend yield make it attractive for investors looking for dividend paying stocks. However, underlying net profits are projected to decline 30% between 2011 (SAR 2,763mn) and 2013 (SAR 1,928mn) due to higher opex and depreciation charges.
KEY STATISTICS
FY09A
FY10A
FY11F
FY12F
FY13F
FY14F
FY15F
Revenues (SAR Mn)
23,851
27,860
31,184
33,055
34,969
36,874
38,848
EBITDA (SAR Mn)
8,327
10,186
11,815
12,183
12,431
13,217
13,396
EBITDA margins
34.9%
36.6%
37.9%
36.9%
35.6%
35.8%
34.5%
Net income (SAR Mn)
1,170
2,279
2,763
2,294
1,928
2,174
1,857
Net Debt/Equity Dividend Yield
31.4% 6.6%
46.6% 4.8%
76.6% 5.1%
114.0% 5.1%
126.2% 5.1%
136.1% 5.1%
142.9% 5.1%
Source: Bloomberg
3
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SEC: Overview Largest utility company in the GCC COMPANY OVERVIEW >
KEY STATISTICS
FY11E
Revenues (SAR Mn)
31,184
Saudi Electricity Company (SEC) was formed in 1999 as an integrated electricity company engaged
Operating Profit (SAR Mn)
2,285
Net Profit (SAR Mn)
in power generation, transmission and distribution of electricity in KSA. The government owns 81.2% of SEC (74.3% directly and 6.9% indirectly through Aramco)
2,763
EBITDA Margin (%)
37.9%
Net Margin (%)
8.9%
RoaE (%)
5.3%
REVENUES BY CUSTOMER TYPE (2009) Commercial, 16%
Government, 27%
BUSINESS OVERVIEW > SEC accounted for 85% of the total power produced in KSA in 2010. The company is responsible for 100% of power sold to end users. Apart from electricity generation at its own power plants, SEC purchases power from Independent Power Producers (IPPs) and Independent Water and Power Producers (IWPPs) at a pre-determined rate through long-term contracts and sells electricity to consumers at tariffs set by the government. The company owns power transmission and distribution network in KSA
KEY FACTS > • • •
Power generation capacity: 41 GW in 2010 (85% of the total KSA capacity of 48.3 GW) Transmission line length: 42,703 circuit kilometres (ckm) in 2009 Distribution line length: 364,139 ckm in 2009
•
Number of customers:
5,701,516 in 2009
MARKET SEGMENTS > Residential, 35% Source: Company filings
Industrial, 19% Others, 4%
Residential customers comprised 35% of SEC’s electricity sales in 2009, followed by government customers constituting 27% of electricity sales. Industrial and commercial customers constituted 19% and 16%, respectively, of electricity sales 4
Investment Theme Robust growth in electricity demand in KSA
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KSA’s electricity demand has expanded at a CAGR of 8.1% from 27 GW in 2004 to 43
KSA ELECTRICITY DEMAND (GW) 70
GW in 2010, led by a young and growing population, rising per capita consumption and increasing industrial activity
CAGR (2011-18) 5.3%
60 CAGR (2004-10) 8.1%
50 40
30 20
27
10
30
34
32
41
38
46
43
52
50
57
54
59
62
65
• Per capita consumption of electricity is forecast to grow from ~8,000 KWh in 2011 to 9,700 KWh by 2018 2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
0
KSA POWER GENERATION CAPACITY Generation capacity(GW) Capacity utilization (%)
60 50 65%
Peak Loads(GW)
66%
GW
40
59%
59%
30
57%
59% 20
10
28 27
31
30
56%
37
35
32
34
48
44
39
38
41
43 2010
2009
2008
2007
2006
2005
2004
0
Source: Company filings, ECRA, Al Mal Capital analysis
Peak demand is estimated to grow at 5.3% per annum over 2011-18, and is expected to reach 65 GW by 2018, according to SEC estimates, as residential and industrial consumption increases
68% 66% 64% 62% 60% 58% 56% 54% 52% 50%
• We expect residential demand to rise at a high rate, as population demographics and the declining size of households should lead to an increase in per capita electricity consumption. The Ministry of Economy and Planning estimates KSA’s population to grow by 2.5% annually during 2011-20, and inhabitants per house to fall to 5.2 in 2015 from 5.7 in 2004
• Industrial activity has also increased rapidly. Contribution of Industrial sector to KSA’s GDP has increased from 63% in 2005 to 70% in 2009 However, power generation capacity in KSA has lagged growth during peak demand • Electricity consumption in KSA is seasonal. Residential users, who consume more electricity in summer (as air conditioners run for longer hours), are the largest consumers of electricity. Consequently, the demand for power increases in the second and third quarter of every year, sometimes exceeding the installed capacity, in turn, resulting in power outages • Demand for power is low in the first and fourth quarters. As a result, capacity utilization averages around 60%-65% for the entire year 5
Investment Theme SEC plans significant capacity additions to meet demand
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To meet demand, significant capacity additions (~27.5 GW, 57% of current
CURRENT MAJOR EXPANSION PROJECTS Generation Capacity (MW)
Project
Year of completion
PP 10
660
2011
Shaibah Steam Plant
794
2011
Rabigh power plant
2,930
2013
Al-Qurayyah
2,000
2015
Dheba IPP
1,600
2016
Al-Shuqaiq IPP
1,600
2017
Ras Alzor IPP
2,400
2019
Total capacity expansion
27,500
85%
83%
60,000
86% 84%
83% 82%
82%
MW
80%
80%
79% 79% 77%
20,000
78% 76%
76% 2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
74%
2010
0
Source: Company filings, ECRA, Al Mal Capital analysis
In this regard, SEC has awarded several contracts in 2009-10 • In November 2010, SEC awarded a SAR1.43Bn contract to expand capacity at the Qassim power plant by 472 MW • In August 2010, the company approved seven power projects worth SAR14.7Bn, including the 2,400 MW Rabigh 6 project
Many of these projects are being undertaken by IPPs and IWPPs
Other power plants
40,000
• Of 27.5 GW, ~17 GW capacity addition is planned at SEC-owned power plants and the remaining ~10.5 GW addition is by IPPs and IWPPs
• In 1H 2010, SEC along with the consortium of GDF Suez, Al-jumaih Group & Sojitz formed Dhuruma Electricity Co. to build the 1,729 MW Riyadh PP11-IPP
CAPACITY EXPANSION IN KSA SEC owned power plants SEC’s contribution to total capacity 86% 85% 80,000
generation capacity of KSA) at a total estimated cost of SAR182 Bn over the next decade have been planned
• For e.g. Rabigh IPP, Qurayyah IPP, Shuqaiq IWPP and Shuaibah IWPP SEC purchases power from IPPs and IWPPs at a pre-determined rate (decided through long-term contracts) and sells electricity to consumers at tariffs set by the government. As a result, SEC will remain the sole seller of electricity to consumers Going forward, SEC’s contribution to KSA’s total power generation capacity is expected to decline from 85% in 2010 to 77% in 2020 Nevertheless, SEC will maintain its dominance over the power generation, transmission and distribution businesses 6
Investment Theme Tariff increase to boost revenue growth in 2011
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In June 2010, the Electricity and Co-generation Regulatory Authority (ECRA)
TARIFF INCREASE Contribution to revenues (2009)
Category
announced the new tariff structure for commercial, government and industrial
Average price per unit
% rise in tariff (estimated)
(SAR '000 per GWh)
Residential
35%
77
0%
Commercial
16%
146
~58%
Government
27%
268
~16%
Industrial
19%
118
~5%
4%
64
0%
Others
GROWTH IN SEC’S REVENUES (SAR BN)
45 40
35 30
25
11.9% YoY growth benefiting from tariff hike
28
31
• The average price per GWh for commercial and government customers is estimated to have increased 57.9% and 15.7%, respectively This hike is likely to boost SEC’s revenues, with limited impact on consumption
• We believe companies will take time to adjust their consumption patterns (mainly through shifting to off-peak times). Hence, non-residential power demand is likely to be inelastic in the short term • Tariff increase is forecast to result in incremental revenue of SAR3.6Bn in 2011 Over the long term, as companies adjust their consumption pattern, the proportion
Revenue growth (4.4% CAGR (2012-20) is mainly driven by capacity expansion and resultant growth in electricity sales
50
customers (61% of revenue base) to be effective from July 01, 2010
of commercial and industrial sales as a % of total sales is expected to decline, though marginally • As a result, the incremental benefit from tariff hike will gradually decrease Nevertheless, tariff increase is expected to help SEC fund its planned capex
33
35
37
39
40
42
43
44
46
20
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Company filings, ECRA, Al Mal Capital analysis
Overall, we forecast SEC’s top line to grow 11.9% in 2011, 6.0% in 2012 and then a CAGR of 4.2% during 2013-20 • While the recent tariff increase will stimulate revenue growth in 2011, higher electricity sales will remain the main driver of revenue growth in the long term 7
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Investment Theme Beyond 2011, higher operating expenses to dent profitability
GROSS MARGIN AND OPERATING MARGIN
We do not expect the increase in tariff to have any cost implications. Hence, most
of the increase will be income accretive, thereby significantly adding to profitability Gross margin
45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
Operating margin
38.2% 37.1% 37.9% 36.2% 35.7% 34.5% 39.3% 36.8% 36.2% 35.8% 35.7% 35.4%
cost of electricity sold will rise, as purchased energy is 71% costlier (SAR55 per 6.5% 7.3% 5.4% 3.4% 4.0% 4.4% 3.3% 3.0% 3.3% 4.0% 3.8% 3.7%
60%
Fuel expenses Operations & Maintenance G&A expenses 1.5%
Purchased energy cost Depreciation
1.2%
1.0%
32.2%
32.3%
31.1%
29.8%
30.0%
30.9%
14.4%
16.0%
16.2%
22.2%
20.5%
20.9%
2010
2015
2020
40% 20%
MWh of purchased energy compared to SAR32 per MWh of produced energy) • We forecast purchased energy cost to increase from SAR4.4 Bn (15.0% of
COMPONENTS OF OPERATING COST (% OF TOTAL)
80%
Beyond 2011, however, gross margin is expected to decline to 34.5% by 2020 • As more energy will be bought instead of being generated internally, the overall
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
100%
We expect gross margin to improve from 37.9% in 2010 to 39.3% in 2011
0%
Source: Company filings, Al Mal Capital analysis
electricity sales) in 2011 to SAR7.1 Bn (16.9% of electricity sales) in 2020 Moreover, we expect depreciation expense to grow, on account of SEC’s substantial capex plans (amounting to SAR182Bn over 2011-20) • Depreciation as % of sales is forecast to rise from 30.1% in 2010 to 31.6% in 2016. Post 2016, it is expected to decline to 29.9% in 2020 as capex slows G&A cost, as % of sales, is likely to improve from 1.4% of revenues in 2010 to 0.9% in 2020, driven by SEC’s restructuring program • SEC plans to unbundle its business into separate business units for generation, transmission and distribution to improve efficiency Overall, operating margin is forecast to decline from 7.3% in 2011 to 3.7% in 2020 8
Investment Theme ROIC lowest among peers
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ELECTRICITY TARIFFS* (US CENTS PER KWH) Qatar KSA Kuwait Oman Dubai USA France India Hong Kong Brazil Russia UK Spain Germany Turkey Australia Italy Chile
RETURN ON INVESTED CAPITAL (2010)
2
SEC
3 4
2.5%
Jordan Electric
5.9%
5 Dhofar Power
6 9 9 10
6.8%
Energias Do Brasil
7.9%
Tata Power
12 12
9.2%
Acwa Power
13 15
9.3%
QEWC
9.5%
17 Al Kamil Power
18 18 19 19
Exelon Corp
5
10
15
20
12.0%
Empresa Nacional
23 0
10.5%
12.2% 0%
25
2%
4%
6%
8%
10%
12%
14%
We expect SEC’s net income to grow 21.2% in 2011, benefiting from the newly implemented tariff structure, and then decline at a rate of 1.5%
during 2012-20 SEC’s net margin is low compared to its peers. In 2010, SEC’s net margin stood at 8.2% vis-à-vis peer group average of 12.4%
• This is primarily due to low electricity tariffs in KSA, both regionally and globally, despite the recent tariff hike. We do not expect any further rise in electricity tariffs in KSA during our forecast period 2011-20 • Return on Invested Capital (ROIC) for SEC was also low at 2.5% compared to the peer group average of 9% in 2010 * Electricity tariff for industrial customers. Exact per KWh tariff may change based on usage slab Source: Reuters, Al Mal Capital research
9
Investment Theme High capex requirement to add to debt burden
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Over 2011-20, we forecast SEC to invest SAR182Bn (47% of sales) to increase its
CAPEX (SAR BN) 40
35
Capex (SAR Bn) 110%
108%
power generation capacity from 41 GW in 2010 to 58 GW by 2020 and expand its
Capex as % sales
120%
100%
30 69%
25 15
34
63%
59%
36 24
10
23
37%
23
28% 15
5
12
40%
19% 8
7% 7% 3 3
2019
2018
2017
2016
2015
2014
2013
2012
2011
0
20% 0%
75%
50
40
66
73
77
75
70
9
15
43%
61
29
24
80% 60% 40%
45
39
18%
2009
15) to fund its expansion projects
20%
Raising funds at a relatively lower cost should not be an issue for SEC • The company is expected to capitalize on the Saudi Government‘s full support and commitment • Government commitment has resulted in a high credit rating for SEC of AA- from Fitch and S&P and A1 from Moody’s
Source: Company filings, Al Mal Capital analysis
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
0%
2010
0
31%
2008
10
59
140%
100%
69%
47%
30
Going forward, we expect the company to raise more debt (~SAR63Bn during 2011-
come down to 55% by 2020 120%
96%
60
20
Net debt-to-equity
126% 131% 125% 118% 108% 113%
70
• As a result, net debt-to-equity ratio rose from 76.6% in 2008 to 111.2% in 2010
• With a decline in expansion activities, the net debt-to-equity ratio is expected to
Net Debt (SAR Bn)
80
offerings, apart from direct loans, during 2009-10
• This is projected to increase the net debt-to-equity ratio to 142.9% in 2015
NET DEBT-TO-EQUITY RATIO 90
To meet capex funding requirements, SEC has raised SAR14Bn through Sukuk
60%
2020
20
80%
transmission and distribution network
10
Investment Theme Fixed dividends provide stable and high yield
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The Government had waived its rights to the company’s dividends over 2001-09 as
DIVIDEND PAYOUT FOR PUBLIC (2010)
long as the dividend does not exceed 10% of par value 140%
127.7%
120%
100%
• This means fewer number of shares are entitled to receive dividends (only
80%
around 18% of outstanding shares)
51.6%
60% 31.1%
40% 20%
Consequently, the public shareholders receive a higher dividend per share
28.6%
13.5%
• In 2010, SEC gave absolute dividend of SAR0.13 per share (payout ratio of 24%)
0%
Acwa Power Barka
Al Kamil Power
Jordan Electric Qatar Power Electricity & Water
Saudi Electricity
• However, due to government waiver, the entire dividend amount was distributed to the public (representing 18% of outstanding shares) • This resulted is SAR0.7 per share dividend (7% of stock par value) to the public
DIVIDEND YIELD
• At SAR0.7, the payout ratio on a per share basis for public stands at 127.7% in
6%
5.1%
4.6%
5%
3.9%
4% 3%
• In 2009, it extended the waiver period by 10 years (until 2020)
2.7%
2010, the highest in its peer group • We project DPS to be distributed in the public to stay at SAR0.7 during 2011-20 At the current price, the per share dividend of SAR0.7 leads to a 5.1% dividend yield
2.2%
2%
• Highest yield amongst the peers makes SEC an attractive dividend play
1%
Due to SEC’s high dividend yield and strong debt ratings (equivalent to the Saudi
0%
Acwa Power Al Kamil Power Jordan Electric Qatar Barka Power Electricity & Water Source: Company filings, Zawya, Al Mal Capital analysis
Saudi Electricity
Government’s rating), some investors view SEC as an alternative to Saudi sovereign debt, but with a much higher yield 11
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Valuation Expensive valuation limits upside P/E
Market Cap. Company
Country
Current
(USD Mn)
EV/EBITDA
Fwd 2011
Fwd 2012
Current
Fwd 2011
Fwd 2012
KSA
15,187
24.9
20.6
24.8
9.3
8.4
8.1
Companhia Energetica De Sao Paulo
Brazil
1,715
NM
NM
3.3
6.1
NM
2.5
Exelon Corp.
USA
27,796
11.2
11.1
14.3
5.3
6.4
7.8
Tata Power Company Limited
India
6,525
20.7
14.3
11.4
12.9
8.2
6.7
Energias Do Brasil SA EMPRESA NACIONAL DE ELECTRICIDAD S.A. Acwa Power Barka Co.
Brazil
3,929
14.2
11.6
9.0
7.2
6.2
5.6
Chile
14,061
13.0
12.2
11.1
8.1
8.3
8.3
Oman
107
14.2
N/A
N/A
13.4
N/A
N/A
Al Kamil Power Co.
Oman
43
27.4
N/A
N/A
12.0
N/A
N/A
Dhofar Power Co.
Oman
54
21.2
N/A
N/A
NM
N/A
N/A
Jordan Electric Power Co.
Jordan
352
21.8
29.0
18.2
10.2
8.3
N/A
Qatar Electricity & Water Co.
Qatar
3,993
11.8
10.8
9.5
11.5
11.2
10.7
17.3
14.8
11.0
9.6
8.1
6.9
44.4%
38.7%
125.5%
-3.4%
3.5%
17.4%
Saudi Electricity Co.
Peer group average SEC premium (discount)%
We hold a positive outlook on SEC’s revenue growth due to increasing electricity demand and the company’s aggressive expansion plans, but
bottom-line growth is likely to remain muted owing to declining margins Moreover, the tariff hike seems to be factored into the current price. At the current level, the stock appears expensive
• Currently, SEC trades at a P/E of 24.9x (44.4% above the peer group average of 17.3x), and EV/EBITDA of 9.3x (at 3.4% discount to the peer group average of 9.6x) SEC’s stable dividend payout and high dividend yield make it attractive for investors looking for dividend paying stocks Source: Bloomberg, Reuters, Company filings, Al Mal Capital analysis
12
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Valuation DCF Method
FCF ANALYSIS (SAR Mn)
2Q11-4Q11
FY12
FY13
FY14
FY15
FY16-20
NOPLAT
3,097
1,744
1,358
1,569
1,231
7,466
Depreciation and amortization
7,271
10,556
11,205
11,767
12,306
67,227
Change in working capital
2,026
3,079
3,485
2,091
3,801
10,097
Capex
(25,273)
(36,281)
(24,161)
(23,243)
(22,956)
(41,574)
FCFF
(12,879)
(20,902)
(8,113)
(7,817)
(5,618)
43,216
0.98
0.92
0.86
0.80
0.74
(12,594)
(19,280)
(6,965)
(6,246)
(4,178)
Discount factor PV of FCFF Sum of PV of FCFF
97,727
Add: Investments
2,320
Less: Net debt and minority interest
(42,063) 57,985
Total Equity Value No. of shares outstanding (Mn)
4167
Fair value per share
13.9
Target Price
14.8
VALUATION INPUTS Risk Free Rate Beta Risk Premium Cost of Equity WACC FCF growth rate
3.2% 0.6 12.1% 10.5%
Cost of debt Effective tax rate Post tax cost of debt
3.7% 2.5% 3.6% 7.4% 1.0%
13
Terminal Value
236,118 0.52
24,358
122,633
Valuation Comparative Valuation
Let the falcon guide you VALUATION METRICS
P/E Multiple Peer group average (FY11E P/E)
EV/EBITDA 14.8
Premium / (Discount) to peer group
-5.0%
Premium / (Discount) to peer group
Target P/E Multiple
14.1x
Target EV/EBITDA multiple
FY11 Earning per share
8.1
Peer group average (FY11E EV/EBITDA)
0.66
-5.0% 7.7x
FY11 EBITDA
11,814.8
Target EV
90,849.7 2,296.9
Add: Investments
(37,630.2)
Less: Net debt and minority interest
55516.3
Target Market Cap. Target price
9.35
Target price
13.32
Current price
13.65
Current price
13.65
Upside/Downside
-2.4%
Upside/Downside
-31.5%
WEIGHTED AVERAGE PRICE (SAR) Methodologies
Weight assigned
Target Price
Weighted average price
Target price using DCF approach
50%
14.81
7.40
Target price using P/E multiple
25%
9.35
2.34
Target price using EV/EBITDA multiple
25%
13.32
3.33
Weighted average target price
13.07
Current price
13.65
Change from current levels
-4.2%
14
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Valuation Assumptions
Peak demand of electricity in KSA is projected to grow at 5.3% per annum over 2011-18 and reach 65 GW by 2018
Revenues
KSA’s power generation capacity is expected to increase to 75.8 GW by 2020 from 48.3 GW in 2010 • 17 GW capacity addition at SEC owned power plants (to reach 58 GW by 2020) and 10.5 GW through IPPs and IWPPs (to reach 17.8 GW by 2020)
Energy sold (in GWh) by customer category • Residential: 52.1% of energy sold in 2010, gradually increasing to 53.2% by 2020 • Commercial: 12.2% of energy sold in 2010, gradually decreasing to 11.6% by 2020 • Government: 11.5% of energy sold in 2010, marginally increasing to 11.6% by 2020 • Industrial: 17.9% of energy sold in 2010 gradually decreasing to 17.3% by 2020 • Others: 6.3% of energy sold in 2010 and assumed to remain constant during 2011-20
Tariff by customer category • Commercial: 21.4% rise in 2011 and constant thereafter • Government: 7.2% rise in 2011 and constant thereafter • Industrial: 2% rise in 2011 and constant thereafter • Residential and Others: No change during 2011-20
SEC’s revenues are projected to grow 11.9% in 2011, 6.0% in 2012 and then at a CAGR of 4.2% during 2013-20 15
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Valuation Assumptions
We assume that the increase in tariff will not have any cost implications and, hence, significantly increase SEC’s profitability
Margins
• We project gross margin to expand from 37.9% in 2010 to 39.3% in 2011, and operating margin to improve from 6.5% in 2010 to 7.3% in 2011
Beyond 2011, though, gross and operating margins are expected to decline to 34.5% and 3.7%, respectively, by 2020. In 2012, we project gross and operating margins of 38.2% and 5.4%, respectively • Purchased energy cost is assumed to increase from 15.0% of electricity sales in 2011 to 16.9% in 2020, as more energy will be bought instead of being generated internally • Depreciation as % of sales is forecast to rise from 30.1% in 2010 to 31.6% in 2016, given SEC’s significant capex plans. Post 2016, it is expected to decline to 29.9% in 2020 as capex slows (average life of power plant is assumed to be 25 years) • General & administrative (G&A) expenses as % of revenues are also forecast to decline 50 bps to 0.9% by 2020, driven by SEC’s restructuring program
Other income
Other income (consists of penalties, sales of tender documents, share in net income of investee companies* and others) is forecast to grow at 4% CAGR during 2010-20
Total SAR182Bn capex (47% of sales) during 2011-20; capex of SAR34Bn in 2011E and SAR36Bn in 2012E • Of the total capex, 94% is expected to for expansion, and the remaining 6% for maintenance
Capex
50% of the capex during 2011-13 to be funded through debt
* SEC holds equity investments in GCC Interconnection Authority and Water & Electricity Company
16
Valuation Sensitivity Analysis
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20.0 17.0
14.8 14.0 10.1
10.1
10.9
16.2
16.2
Capex decreases by 5.0%
Bull Case
13.1
11.6
SAR 11.0
15.4
14.8
11.6
8.0 5.0 Bear Case
Capex increases by 5.0%
Growth in Rise in cost of Growth in generation purchased energy sold per capacity (%) energy (%) customer (%) decreases by - increases by decreases by 1.0% 1.0% 1.0%
Base Case
Growth in Rise in cost of energy sold per purchased customer (%) energy (%) increases by decreases by 1.0% 1.0%
Growth in generation capacity (%) increases by 1.0%
Bear case:
Base case:
Bull case:
Growth in energy sold per customer is 1% lower
Energy sold per customer increases by 2% in 2011 and 2012
Growth in energy sold per customer is 1% higher
Rise in cost of purchased energy per GWh is 1% higher
Cost of purchased energy per GWh increases by 3% per annum
Rise in cost of purchased energy per GWh is 1% lower
Growth in SEC owned generation capacity is 1% lower
SEC-owned power generation capacity increases by 4% in 2011 and 2012
Growth in SEC owned generation capacity is 1% higher
Capex is 5% higher than assumed
Capex of SAR34Bn in 2011 and SAR36Bn in 2012
Capex is 5% lower than assumed
Source: Al Mal Capital analysis
17
SEC – Financial Statements Income Statement
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Income statement (SAR Mn) Total Revenue Growth (%)
FY09A 23,851 7.0%
FY10A 27,860 16.8%
Gross Profit Margin (%)
(15,208) 8,643 36.2%
(17,292) 10,568 37.9%
(316) 8,327 34.9%
(382) 10,186 36.6%
(7,515) 812 3.4%
(8,380) 1,806 6.5%
Other Income Profit before tax Provision for Zakat *
357 1,170
473 2,279
0
Net income
Cost of Sales Gross Profit
General and Administration Expenses EBITDA EBITDA Margin (%) Depreciation of Property and Equipment EBIT EBIT Margin (%)
Net Margin (%) Absolute dividend Payout Ratio (%) Earnings per share (SAR) Dividend per share (SAR) – Absolute Dividend per share (SAR) – Paid to public * SEC paid no Zakat due to the negative adjusted net income and Zakat base
FY11F 31,184 11.9% (18,942) 12,242 39.3%
FY12F 33,055 6.0% (20,436) 12,620 38.2%
FY13F 34,969 5.8% (22,094) 12,875 36.8%
FY14F 36,874 5.4% (23,207) 13,667 37.1%
FY15F 38,848 5.4% (24,998) 13,850 35.7%
(427)
(436)
(444)
(450)
(454)
11,815 37.9% (9,529) 2,285 7.3%
12,183 36.9% (10,395) 1,788 5.4%
12,431 35.6% (11,039) 1,392 4.0%
13,217 35.8% (11,607) 1,610 4.4%
13,396 34.5% (12,133) 1,263 3.3%
0
477 2,763 0
506 2,294 0
535 1,928 0
565 2,174 0
595 1,857 0
1,170 4.9% 547 47%
2,279 8.2% 547 24%
2,763 8.9% 547 20%
2,294 6.9% 547 24%
1,928 5.5% 547 28%
2,174 5.9% 547 25%
1,857 4.8% 547 29%
0.28 0.13 0.70
0.55 0.13 0.70
0.66 0.13 0.70
0.55 0.13 0.70
0.46 0.13 0.70
0.52 0.13 0.70
0.45 0.13 0.70
18
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SEC – Financial Statements Balance Sheet
Balance sheet (SAR Mn) Shareholders' Equity
FY09A 49,175
FY10A 50,658
FY11F 52,873
FY12F 54,621
FY13F 56,001
FY14F 57,628
FY15F 58,938
Long Term Liability Long Term Debt Government Loan Corporate Bonds(Sukuk)
67,297
85,083
6,512 14,938 12,000 33,848 49,619
10,632 18,688 19,000 36,762 55,131
102,663 26,152 18,688 19,000
121,444 44,247 18,688 18,500
133,276 54,867 18,688 18,500
142,320 63,404 18,688 17,800
149,695 70,230 18,688 17,100
828 47,351 1,440 166,091
1,189 49,540 4,402 190,872
38,822 60,421 1,329 54,267 4,825 215,957
40,009 64,290 545 58,545 5,199 240,354
41,221 70,370 1,461 63,295 5,614 259,647
42,428 73,838 1,461 66,485 5,892 273,786
43,677 78,716 761 71,616 6,340 287,349
(30,625) 22,048
(34,637) 26,536
3,883 10,586 5,623 1,956 144,043
7,231 9,965 5,705 3,635 164,336
2,353 109,109 366 32,215 166,091
2,297 135,635 366 26,038 190,872
(38,685) 27,430 7,023 10,174 6,249 3,984 188,527 2,320 159,803 366 26,038 215,957
(41,925) 25,918 4,099 10,784 6,742 4,293 214,436 2,343 185,689 366 26,038 240,354
(45,576) 32,066 8,733 11,409 7,289 4,636 227,581 2,366 198,811 366 26,038 259,647
(47,825) 34,545 9,993 12,030 7,656 4,866 239,241 2,390 210,447 366 26,038 273,786
(51,799) 37,262 11,105 12,674 8,247 5,235 250,087 2,414 221,270 366 26,038 287,349
Other long term liabilities Current Liabilities Current Portion of Long Term Debt Accounts Payable Accruals & Other Payables Total Liabilities and Equity Working Capital Current Assets Cash and cash equivalents Accounts receivables, net Inventories, net Prepaid expenses and other current assets
Non Current Assets Equity Investments Property, Plant and Equipment Loans to subsidiaries Construction work in progress Total Assets
19
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SEC - Financial Statements Cash Flow Statement
Cash flow statement (SAR Mn) Operating Activities
FY09A
FY10A
FY11F
FY12F
FY13F
FY14F
FY15F
Net Profit after tax Depreciation Change in Provisions
1,170 7,515
2,279 8,380
2,763 9,529
2,294 10,395
1,928 11,039
2,174 11,607
1,857 12,133
106
537
35
161
166
159
172
Company’s share in net income of associates Other adjustments
(34) 1,612
0 0
0 2,060
0 1,187
0 1,212
0 1,207
0 1,249
Changes in operating assets & liabilities Cash Flows from Operating Activities
14,793 25,162
5,807 17,003
4,013 18,400
3,079 17,116
3,485 17,830
2,091 17,238
3,801 19,213
Investing Activities Change in investments
(1,159)
1,036
(23)
(23)
(23)
(24)
(24)
Addition to property, plant and equipment
(30,596)
(28,381)
(33,698)
(36,281)
(24,161)
(23,243)
(22,956)
Loan to subsidiary
(366) (32,120)
0 (27,345)
0 (33,721)
0 (36,304)
0 (24,184)
0 (23,267)
0 (22,980)
9,136
15,231 (540) 14,691
16,812 (547)
11,535 (547)
7,836 (547)
5,426 (547)
Cash Flows from Financing Activities
(527) 8,609
15,660 (547) 15,112
16,264
10,988
7,289
4,879
Net change in Cash and Cash Equivalents
1,650
4,349
(209)
(2,924)
4,634
1,261
1,112
Cash and Cash Equivalent at end of the year
2,883
7,231
7,023
4,099
8,733
9,993
11,105
Cash Flows used in Investing Activities Financing Activities Net movement in interest bearing loans Dividend paid to equity share holders
20
Let the falcon guide you Key ratios Profitability ratios Gross Margin EBITDA Margin EBIT Margin Net Profit Margin Return on Average Assets Return on Average Equity Liquidity ratios Cash conversion cycle Leverage ratios Net Debt/Equity (%) Valuation ratios P/E x P/Sales x EV/EBITDA x Dividend Yield Du Pont Analysis Net margin Asset Turnover Financial leverage RoE
SEC – Financial Statements Ratio Analysis FY09A
FY10A
FY11F
FY12F
FY13F
FY14F
FY15F
36.2% 34.9% 3.4% 4.9% 0.8% 2.4%
37.9% 36.6% 6.5% 8.2% 1.3% 4.6%
39.3% 37.9% 7.3% 8.9% 1.4% 5.3%
38.2% 36.9% 5.4% 6.9% 1.0% 4.3%
36.8% 35.6% 4.0% 5.5% 0.8% 3.5%
37.1% 35.8% 4.4% 5.9% 0.8% 3.8%
35.7% 34.5% 3.3% 4.8% 0.7% 3.2%
(835)
(790)
(790)
(790)
(790)
(790)
(790)
31.4%
46.6%
74.6%
108.4%
118.0%
126.1%
130.6%
48.6 2.4 8.7 6.6%
25.0 2.0 9.7 4.8%
20.6 1.8 8.4 5.1%
24.8 1.7 8.1 5.1%
29.5 1.6 8.0 5.1%
26.2 1.5 7.5 5.1%
30.6 1.5 7.4 5.1%
4.9% 14.4% 3.38 2.4%
8.2% 14.6% 3.77 4.5%
8.9% 14.4% 4.08 5.2%
6.9% 13.8% 4.40 4.2%
5.5% 13.5% 4.64 3.4%
5.9% 13.5% 4.75 3.8%
4.8% 13.5% 4.88 3.2%
21
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Institutional Sales Jalal Faruki
+971 4 360 1103
Akram Annous
+971 4 360 1113
Research Irfan Ellam
+971 4 360 1153
Disclaimer: This report is not an offer to buy or sell nor a solicitation to buy or sell any of the securities mentioned within. The information and recommendations contained in this report were prepared using information available to the public and sources Al Mal Capital believes to be reliable. Al Mal Capital PSC does not guarantee the accuracy of the information contained within this report and accepts no responsibility or liability for losses or damages incurred as a result of investment decisions taken based on information provided or referred to in this report. Any analysis of historical facts and data is for information purposes only and past performance of any company or security is no guarantee or indication of future results. Al Mal Capital PSC, or its “related group companies” (which may include any of its branches, affiliates and subsidiaries) or any director(s) or employee(s) of the said companies, individually or collectively, may from time to time take positions or effect transactions related to companies mentioned in this report. Al Mal Capital PSC and its related group companies may have performed or seek to perform investment banking or any other financial or advisory services for the companies mentioned in this report. 22
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Office 302, Downtown Dubai ,Emaar Square 4 Sheikh Zayed Road, P.O. Box 119930, Dubai, UAE Tel: +971 4 360 11 11, Fax: +971 4 360 11 22 www.almalcapital.com
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SEC: Investment Summary (1/2) Earnings lack growth; an attractive dividend play
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UNDER PERFORM
RATING Target Price (SAR)
13.07
Upside
-4.2%
Price (15 May 2011)
13.65
Market Cap. (SAR Bn)
56.9
Market Cap. (USD Bn)
15.2
Shares Outstanding (Mn)
4167
Price 52wk H/L
15.6 / 10.5 SECO AB
Ticker (Reuters)
5110.SE
SEC
Jan-09
Robust growth in electricity demand in KSA • Demand is estimated to grow at 5.3% per annum over 2011-18 (8.1% CAGR during 2004-10), driven by rising per capita electricity consumption on account of young and growing population (60% below the age of 30) and declining size of households, and increasing industrial activity • However, capacity has failed to match growth in peak demand. To meet the peak load demand of 65 GW in 2018, KSA needs to grow its generation capacity by 50% from 48 GW in 2010 to 72 GW by 2018
Ticker (Bloomberg)
210 190 170 150 130 110 90 70 50
INVESTMENT POSITIVES AND RISKS >
Increase in electricity sales is the main growth driver • The tariff hike (in June 2010) is expected to boost revenues (we estimate incremental revenue of SAR3.6Bn) and profitability (130 bps improvement in gross margin) in 2011 • In the long term, sales are likely to drive growth. We see SEC’s top line growing 11.9% in 2011, 6.0% in 2012 and at 4.2% CAGR in 2013-20 Beyond 2011, higher operating expenses to dent profitability • Operating margin is forecast to improve from 6.5% in 2010 to 7.3% in 2011, buoyed by tariff hikes, but then decline to 5.4% in 2012 and to 3.7% by 2020 due to higher purchased energy cost (as more energy will be bought instead of being generated internally) and higher depreciation expense as capacity is expanded
Tadawul
• We expect net income to peak in 2011 (SAR2.8Bn) and decline at a rate of 1.5% during 2012-20
Aug-09
Source: Bloomberg
Mar-10
Oct-10
May-11
Dividends provide stable and high yield making SEC an attractive dividend play • SEC’s debt ratings are equivalent to that of the Saudi Government, which owns 81% stake in SEC. The government has also waived its rights to the company’s dividends up to 2020 • With less shares entitled to receive dividends, public shareholders receive SAR0.7 DPS (against SAR0.13 in case of no waiver), leading to the highest dividend yield (5.1%) amongst SEC’s peers 2
SEC: Investment Summary (2/2) Expensive valuation limits upside
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VALUATION APPROACH
UNDER PERFORM
DCF approach
14.81
P/E approach
9.35
EV/EBITDA approach
13.32
Weighted average target price
13.07
FY10A
FY11F
FY12F
EPS (SAR)
0.55
0.66
0.55
P/E (x)
25.0
20.6
24.8
EBITDA (SAR Bn)
10.2
11.8
12.2
9.7
8.4
8.1
MULTIPLES
EV/EBITDA (x)
STOCK VALUATION > The stock appears expensive at current levels, given that tariff hikes are factored into the current price, and SEC is trading at a premium to its peer group At current multiples, SEC trades at a P/E of 24.9x, a premium of 44.4% versus the peer group average of 17.3x, and EV/EBITDA of 9.3x, a discount of 3.4% versus the peer group average of 9.6x On forward multiples, SEC trades at 20.6x FY11E P/E, a premium of 38.7% versus the peer group average of 14.8x FY11E P/E, and 8.4x FY11E EV/EBITDA, a premium of 3.5% versus the peer group average of 8.1x FY11E EV/EBITDA
Our DCF, P/E and EV/EBITDA based valuation returns a weighted average target price of SAR13.07 (4.2% downside at the current level) SEC’s stable dividend payout and high dividend yield make it attractive for investors looking for dividend paying stocks. However, underlying net profits are projected to decline 30% between 2011 (SAR 2,763mn) and 2013 (SAR 1,928mn) due to higher opex and depreciation charges.
KEY STATISTICS
FY09A
FY10A
FY11F
FY12F
FY13F
FY14F
FY15F
Revenues (SAR Mn)
23,851
27,860
31,184
33,055
34,969
36,874
38,848
EBITDA (SAR Mn)
8,327
10,186
11,815
12,183
12,431
13,217
13,396
EBITDA margins
34.9%
36.6%
37.9%
36.9%
35.6%
35.8%
34.5%
Net income (SAR Mn)
1,170
2,279
2,763
2,294
1,928
2,174
1,857
Net Debt/Equity Dividend Yield
31.4% 6.6%
46.6% 4.8%
76.6% 5.1%
114.0% 5.1%
126.2% 5.1%
136.1% 5.1%
142.9% 5.1%
Source: Bloomberg
3
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SEC: Overview Largest utility company in the GCC COMPANY OVERVIEW >
KEY STATISTICS
FY11E
Revenues (SAR Mn)
31,184
Saudi Electricity Company (SEC) was formed in 1999 as an integrated electricity company engaged
Operating Profit (SAR Mn)
2,285
Net Profit (SAR Mn)
in power generation, transmission and distribution of electricity in KSA. The government owns 81.2% of SEC (74.3% directly and 6.9% indirectly through Aramco)
2,763
EBITDA Margin (%)
37.9%
Net Margin (%)
8.9%
RoaE (%)
5.3%
REVENUES BY CUSTOMER TYPE (2009) Commercial, 16%
Government, 27%
BUSINESS OVERVIEW > SEC accounted for 85% of the total power produced in KSA in 2010. The company is responsible for 100% of power sold to end users. Apart from electricity generation at its own power plants, SEC purchases power from Independent Power Producers (IPPs) and Independent Water and Power Producers (IWPPs) at a pre-determined rate through long-term contracts and sells electricity to consumers at tariffs set by the government. The company owns power transmission and distribution network in KSA
KEY FACTS > • • •
Power generation capacity: 41 GW in 2010 (85% of the total KSA capacity of 48.3 GW) Transmission line length: 42,703 circuit kilometres (ckm) in 2009 Distribution line length: 364,139 ckm in 2009
•
Number of customers:
5,701,516 in 2009
MARKET SEGMENTS > Residential, 35% Source: Company filings
Industrial, 19% Others, 4%
Residential customers comprised 35% of SEC’s electricity sales in 2009, followed by government customers constituting 27% of electricity sales. Industrial and commercial customers constituted 19% and 16%, respectively, of electricity sales 4
Investment Theme Robust growth in electricity demand in KSA
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KSA’s electricity demand has expanded at a CAGR of 8.1% from 27 GW in 2004 to 43
KSA ELECTRICITY DEMAND (GW) 70
GW in 2010, led by a young and growing population, rising per capita consumption and increasing industrial activity
CAGR (2011-18) 5.3%
60 CAGR (2004-10) 8.1%
50 40
30 20
27
10
30
34
32
41
38
46
43
52
50
57
54
59
62
65
• Per capita consumption of electricity is forecast to grow from ~8,000 KWh in 2011 to 9,700 KWh by 2018 2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
0
KSA POWER GENERATION CAPACITY Generation capacity(GW) Capacity utilization (%)
60 50 65%
Peak Loads(GW)
66%
GW
40
59%
59%
30
57%
59% 20
10
28 27
31
30
56%
37
35
32
34
48
44
39
38
41
43 2010
2009
2008
2007
2006
2005
2004
0
Source: Company filings, ECRA, Al Mal Capital analysis
Peak demand is estimated to grow at 5.3% per annum over 2011-18, and is expected to reach 65 GW by 2018, according to SEC estimates, as residential and industrial consumption increases
68% 66% 64% 62% 60% 58% 56% 54% 52% 50%
• We expect residential demand to rise at a high rate, as population demographics and the declining size of households should lead to an increase in per capita electricity consumption. The Ministry of Economy and Planning estimates KSA’s population to grow by 2.5% annually during 2011-20, and inhabitants per house to fall to 5.2 in 2015 from 5.7 in 2004
• Industrial activity has also increased rapidly. Contribution of Industrial sector to KSA’s GDP has increased from 63% in 2005 to 70% in 2009 However, power generation capacity in KSA has lagged growth during peak demand • Electricity consumption in KSA is seasonal. Residential users, who consume more electricity in summer (as air conditioners run for longer hours), are the largest consumers of electricity. Consequently, the demand for power increases in the second and third quarter of every year, sometimes exceeding the installed capacity, in turn, resulting in power outages • Demand for power is low in the first and fourth quarters. As a result, capacity utilization averages around 60%-65% for the entire year 5
Investment Theme SEC plans significant capacity additions to meet demand
Let the falcon guide you
To meet demand, significant capacity additions (~27.5 GW, 57% of current
CURRENT MAJOR EXPANSION PROJECTS Generation Capacity (MW)
Project
Year of completion
PP 10
660
2011
Shaibah Steam Plant
794
2011
Rabigh power plant
2,930
2013
Al-Qurayyah
2,000
2015
Dheba IPP
1,600
2016
Al-Shuqaiq IPP
1,600
2017
Ras Alzor IPP
2,400
2019
Total capacity expansion
27,500
85%
83%
60,000
86% 84%
83% 82%
82%
MW
80%
80%
79% 79% 77%
20,000
78% 76%
76% 2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
74%
2010
0
Source: Company filings, ECRA, Al Mal Capital analysis
In this regard, SEC has awarded several contracts in 2009-10 • In November 2010, SEC awarded a SAR1.43Bn contract to expand capacity at the Qassim power plant by 472 MW • In August 2010, the company approved seven power projects worth SAR14.7Bn, including the 2,400 MW Rabigh 6 project
Many of these projects are being undertaken by IPPs and IWPPs
Other power plants
40,000
• Of 27.5 GW, ~17 GW capacity addition is planned at SEC-owned power plants and the remaining ~10.5 GW addition is by IPPs and IWPPs
• In 1H 2010, SEC along with the consortium of GDF Suez, Al-jumaih Group & Sojitz formed Dhuruma Electricity Co. to build the 1,729 MW Riyadh PP11-IPP
CAPACITY EXPANSION IN KSA SEC owned power plants SEC’s contribution to total capacity 86% 85% 80,000
generation capacity of KSA) at a total estimated cost of SAR182 Bn over the next decade have been planned
• For e.g. Rabigh IPP, Qurayyah IPP, Shuqaiq IWPP and Shuaibah IWPP SEC purchases power from IPPs and IWPPs at a pre-determined rate (decided through long-term contracts) and sells electricity to consumers at tariffs set by the government. As a result, SEC will remain the sole seller of electricity to consumers Going forward, SEC’s contribution to KSA’s total power generation capacity is expected to decline from 85% in 2010 to 77% in 2020 Nevertheless, SEC will maintain its dominance over the power generation, transmission and distribution businesses 6
Investment Theme Tariff increase to boost revenue growth in 2011
Let the falcon guide you
In June 2010, the Electricity and Co-generation Regulatory Authority (ECRA)
TARIFF INCREASE Contribution to revenues (2009)
Category
announced the new tariff structure for commercial, government and industrial
Average price per unit
% rise in tariff (estimated)
(SAR '000 per GWh)
Residential
35%
77
0%
Commercial
16%
146
~58%
Government
27%
268
~16%
Industrial
19%
118
~5%
4%
64
0%
Others
GROWTH IN SEC’S REVENUES (SAR BN)
45 40
35 30
25
11.9% YoY growth benefiting from tariff hike
28
31
• The average price per GWh for commercial and government customers is estimated to have increased 57.9% and 15.7%, respectively This hike is likely to boost SEC’s revenues, with limited impact on consumption
• We believe companies will take time to adjust their consumption patterns (mainly through shifting to off-peak times). Hence, non-residential power demand is likely to be inelastic in the short term • Tariff increase is forecast to result in incremental revenue of SAR3.6Bn in 2011 Over the long term, as companies adjust their consumption pattern, the proportion
Revenue growth (4.4% CAGR (2012-20) is mainly driven by capacity expansion and resultant growth in electricity sales
50
customers (61% of revenue base) to be effective from July 01, 2010
of commercial and industrial sales as a % of total sales is expected to decline, though marginally • As a result, the incremental benefit from tariff hike will gradually decrease Nevertheless, tariff increase is expected to help SEC fund its planned capex
33
35
37
39
40
42
43
44
46
20
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Company filings, ECRA, Al Mal Capital analysis
Overall, we forecast SEC’s top line to grow 11.9% in 2011, 6.0% in 2012 and then a CAGR of 4.2% during 2013-20 • While the recent tariff increase will stimulate revenue growth in 2011, higher electricity sales will remain the main driver of revenue growth in the long term 7
Let the falcon guide you
Investment Theme Beyond 2011, higher operating expenses to dent profitability
GROSS MARGIN AND OPERATING MARGIN
We do not expect the increase in tariff to have any cost implications. Hence, most
of the increase will be income accretive, thereby significantly adding to profitability Gross margin
45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
Operating margin
38.2% 37.1% 37.9% 36.2% 35.7% 34.5% 39.3% 36.8% 36.2% 35.8% 35.7% 35.4%
cost of electricity sold will rise, as purchased energy is 71% costlier (SAR55 per 6.5% 7.3% 5.4% 3.4% 4.0% 4.4% 3.3% 3.0% 3.3% 4.0% 3.8% 3.7%
60%
Fuel expenses Operations & Maintenance G&A expenses 1.5%
Purchased energy cost Depreciation
1.2%
1.0%
32.2%
32.3%
31.1%
29.8%
30.0%
30.9%
14.4%
16.0%
16.2%
22.2%
20.5%
20.9%
2010
2015
2020
40% 20%
MWh of purchased energy compared to SAR32 per MWh of produced energy) • We forecast purchased energy cost to increase from SAR4.4 Bn (15.0% of
COMPONENTS OF OPERATING COST (% OF TOTAL)
80%
Beyond 2011, however, gross margin is expected to decline to 34.5% by 2020 • As more energy will be bought instead of being generated internally, the overall
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
100%
We expect gross margin to improve from 37.9% in 2010 to 39.3% in 2011
0%
Source: Company filings, Al Mal Capital analysis
electricity sales) in 2011 to SAR7.1 Bn (16.9% of electricity sales) in 2020 Moreover, we expect depreciation expense to grow, on account of SEC’s substantial capex plans (amounting to SAR182Bn over 2011-20) • Depreciation as % of sales is forecast to rise from 30.1% in 2010 to 31.6% in 2016. Post 2016, it is expected to decline to 29.9% in 2020 as capex slows G&A cost, as % of sales, is likely to improve from 1.4% of revenues in 2010 to 0.9% in 2020, driven by SEC’s restructuring program • SEC plans to unbundle its business into separate business units for generation, transmission and distribution to improve efficiency Overall, operating margin is forecast to decline from 7.3% in 2011 to 3.7% in 2020 8
Investment Theme ROIC lowest among peers
Let the falcon guide you
ELECTRICITY TARIFFS* (US CENTS PER KWH) Qatar KSA Kuwait Oman Dubai USA France India Hong Kong Brazil Russia UK Spain Germany Turkey Australia Italy Chile
RETURN ON INVESTED CAPITAL (2010)
2
SEC
3 4
2.5%
Jordan Electric
5.9%
5 Dhofar Power
6 9 9 10
6.8%
Energias Do Brasil
7.9%
Tata Power
12 12
9.2%
Acwa Power
13 15
9.3%
QEWC
9.5%
17 Al Kamil Power
18 18 19 19
Exelon Corp
5
10
15
20
12.0%
Empresa Nacional
23 0
10.5%
12.2% 0%
25
2%
4%
6%
8%
10%
12%
14%
We expect SEC’s net income to grow 21.2% in 2011, benefiting from the newly implemented tariff structure, and then decline at a rate of 1.5%
during 2012-20 SEC’s net margin is low compared to its peers. In 2010, SEC’s net margin stood at 8.2% vis-à-vis peer group average of 12.4%
• This is primarily due to low electricity tariffs in KSA, both regionally and globally, despite the recent tariff hike. We do not expect any further rise in electricity tariffs in KSA during our forecast period 2011-20 • Return on Invested Capital (ROIC) for SEC was also low at 2.5% compared to the peer group average of 9% in 2010 * Electricity tariff for industrial customers. Exact per KWh tariff may change based on usage slab Source: Reuters, Al Mal Capital research
9
Investment Theme High capex requirement to add to debt burden
Let the falcon guide you
Over 2011-20, we forecast SEC to invest SAR182Bn (47% of sales) to increase its
CAPEX (SAR BN) 40
35
Capex (SAR Bn) 110%
108%
power generation capacity from 41 GW in 2010 to 58 GW by 2020 and expand its
Capex as % sales
120%
100%
30 69%
25 15
34
63%
59%
36 24
10
23
37%
23
28% 15
5
12
40%
19% 8
7% 7% 3 3
2019
2018
2017
2016
2015
2014
2013
2012
2011
0
20% 0%
75%
50
40
66
73
77
75
70
9
15
43%
61
29
24
80% 60% 40%
45
39
18%
2009
15) to fund its expansion projects
20%
Raising funds at a relatively lower cost should not be an issue for SEC • The company is expected to capitalize on the Saudi Government‘s full support and commitment • Government commitment has resulted in a high credit rating for SEC of AA- from Fitch and S&P and A1 from Moody’s
Source: Company filings, Al Mal Capital analysis
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
0%
2010
0
31%
2008
10
59
140%
100%
69%
47%
30
Going forward, we expect the company to raise more debt (~SAR63Bn during 2011-
come down to 55% by 2020 120%
96%
60
20
Net debt-to-equity
126% 131% 125% 118% 108% 113%
70
• As a result, net debt-to-equity ratio rose from 76.6% in 2008 to 111.2% in 2010
• With a decline in expansion activities, the net debt-to-equity ratio is expected to
Net Debt (SAR Bn)
80
offerings, apart from direct loans, during 2009-10
• This is projected to increase the net debt-to-equity ratio to 142.9% in 2015
NET DEBT-TO-EQUITY RATIO 90
To meet capex funding requirements, SEC has raised SAR14Bn through Sukuk
60%
2020
20
80%
transmission and distribution network
10
Investment Theme Fixed dividends provide stable and high yield
Let the falcon guide you
The Government had waived its rights to the company’s dividends over 2001-09 as
DIVIDEND PAYOUT FOR PUBLIC (2010)
long as the dividend does not exceed 10% of par value 140%
127.7%
120%
100%
• This means fewer number of shares are entitled to receive dividends (only
80%
around 18% of outstanding shares)
51.6%
60% 31.1%
40% 20%
Consequently, the public shareholders receive a higher dividend per share
28.6%
13.5%
• In 2010, SEC gave absolute dividend of SAR0.13 per share (payout ratio of 24%)
0%
Acwa Power Barka
Al Kamil Power
Jordan Electric Qatar Power Electricity & Water
Saudi Electricity
• However, due to government waiver, the entire dividend amount was distributed to the public (representing 18% of outstanding shares) • This resulted is SAR0.7 per share dividend (7% of stock par value) to the public
DIVIDEND YIELD
• At SAR0.7, the payout ratio on a per share basis for public stands at 127.7% in
6%
5.1%
4.6%
5%
3.9%
4% 3%
• In 2009, it extended the waiver period by 10 years (until 2020)
2.7%
2010, the highest in its peer group • We project DPS to be distributed in the public to stay at SAR0.7 during 2011-20 At the current price, the per share dividend of SAR0.7 leads to a 5.1% dividend yield
2.2%
2%
• Highest yield amongst the peers makes SEC an attractive dividend play
1%
Due to SEC’s high dividend yield and strong debt ratings (equivalent to the Saudi
0%
Acwa Power Al Kamil Power Jordan Electric Qatar Barka Power Electricity & Water Source: Company filings, Zawya, Al Mal Capital analysis
Saudi Electricity
Government’s rating), some investors view SEC as an alternative to Saudi sovereign debt, but with a much higher yield 11
Let the falcon guide you
Valuation Expensive valuation limits upside P/E
Market Cap. Company
Country
Current
(USD Mn)
EV/EBITDA
Fwd 2011
Fwd 2012
Current
Fwd 2011
Fwd 2012
KSA
15,187
24.9
20.6
24.8
9.3
8.4
8.1
Companhia Energetica De Sao Paulo
Brazil
1,715
NM
NM
3.3
6.1
NM
2.5
Exelon Corp.
USA
27,796
11.2
11.1
14.3
5.3
6.4
7.8
Tata Power Company Limited
India
6,525
20.7
14.3
11.4
12.9
8.2
6.7
Energias Do Brasil SA EMPRESA NACIONAL DE ELECTRICIDAD S.A. Acwa Power Barka Co.
Brazil
3,929
14.2
11.6
9.0
7.2
6.2
5.6
Chile
14,061
13.0
12.2
11.1
8.1
8.3
8.3
Oman
107
14.2
N/A
N/A
13.4
N/A
N/A
Al Kamil Power Co.
Oman
43
27.4
N/A
N/A
12.0
N/A
N/A
Dhofar Power Co.
Oman
54
21.2
N/A
N/A
NM
N/A
N/A
Jordan Electric Power Co.
Jordan
352
21.8
29.0
18.2
10.2
8.3
N/A
Qatar Electricity & Water Co.
Qatar
3,993
11.8
10.8
9.5
11.5
11.2
10.7
17.3
14.8
11.0
9.6
8.1
6.9
44.4%
38.7%
125.5%
-3.4%
3.5%
17.4%
Saudi Electricity Co.
Peer group average SEC premium (discount)%
We hold a positive outlook on SEC’s revenue growth due to increasing electricity demand and the company’s aggressive expansion plans, but
bottom-line growth is likely to remain muted owing to declining margins Moreover, the tariff hike seems to be factored into the current price. At the current level, the stock appears expensive
• Currently, SEC trades at a P/E of 24.9x (44.4% above the peer group average of 17.3x), and EV/EBITDA of 9.3x (at 3.4% discount to the peer group average of 9.6x) SEC’s stable dividend payout and high dividend yield make it attractive for investors looking for dividend paying stocks Source: Bloomberg, Reuters, Company filings, Al Mal Capital analysis
12
Let the falcon guide you
Valuation DCF Method
FCF ANALYSIS (SAR Mn)
2Q11-4Q11
FY12
FY13
FY14
FY15
FY16-20
NOPLAT
3,097
1,744
1,358
1,569
1,231
7,466
Depreciation and amortization
7,271
10,556
11,205
11,767
12,306
67,227
Change in working capital
2,026
3,079
3,485
2,091
3,801
10,097
Capex
(25,273)
(36,281)
(24,161)
(23,243)
(22,956)
(41,574)
FCFF
(12,879)
(20,902)
(8,113)
(7,817)
(5,618)
43,216
0.98
0.92
0.86
0.80
0.74
(12,594)
(19,280)
(6,965)
(6,246)
(4,178)
Discount factor PV of FCFF Sum of PV of FCFF
97,727
Add: Investments
2,320
Less: Net debt and minority interest
(42,063) 57,985
Total Equity Value No. of shares outstanding (Mn)
4167
Fair value per share
13.9
Target Price
14.8
VALUATION INPUTS Risk Free Rate Beta Risk Premium Cost of Equity WACC FCF growth rate
3.2% 0.6 12.1% 10.5%
Cost of debt Effective tax rate Post tax cost of debt
3.7% 2.5% 3.6% 7.4% 1.0%
13
Terminal Value
236,118 0.52
24,358
122,633
Valuation Comparative Valuation
Let the falcon guide you VALUATION METRICS
P/E Multiple Peer group average (FY11E P/E)
EV/EBITDA 14.8
Premium / (Discount) to peer group
-5.0%
Premium / (Discount) to peer group
Target P/E Multiple
14.1x
Target EV/EBITDA multiple
FY11 Earning per share
8.1
Peer group average (FY11E EV/EBITDA)
0.66
-5.0% 7.7x
FY11 EBITDA
11,814.8
Target EV
90,849.7 2,296.9
Add: Investments
(37,630.2)
Less: Net debt and minority interest
55516.3
Target Market Cap. Target price
9.35
Target price
13.32
Current price
13.65
Current price
13.65
Upside/Downside
-2.4%
Upside/Downside
-31.5%
WEIGHTED AVERAGE PRICE (SAR) Methodologies
Weight assigned
Target Price
Weighted average price
Target price using DCF approach
50%
14.81
7.40
Target price using P/E multiple
25%
9.35
2.34
Target price using EV/EBITDA multiple
25%
13.32
3.33
Weighted average target price
13.07
Current price
13.65
Change from current levels
-4.2%
14
Let the falcon guide you
Valuation Assumptions
Peak demand of electricity in KSA is projected to grow at 5.3% per annum over 2011-18 and reach 65 GW by 2018
Revenues
KSA’s power generation capacity is expected to increase to 75.8 GW by 2020 from 48.3 GW in 2010 • 17 GW capacity addition at SEC owned power plants (to reach 58 GW by 2020) and 10.5 GW through IPPs and IWPPs (to reach 17.8 GW by 2020)
Energy sold (in GWh) by customer category • Residential: 52.1% of energy sold in 2010, gradually increasing to 53.2% by 2020 • Commercial: 12.2% of energy sold in 2010, gradually decreasing to 11.6% by 2020 • Government: 11.5% of energy sold in 2010, marginally increasing to 11.6% by 2020 • Industrial: 17.9% of energy sold in 2010 gradually decreasing to 17.3% by 2020 • Others: 6.3% of energy sold in 2010 and assumed to remain constant during 2011-20
Tariff by customer category • Commercial: 21.4% rise in 2011 and constant thereafter • Government: 7.2% rise in 2011 and constant thereafter • Industrial: 2% rise in 2011 and constant thereafter • Residential and Others: No change during 2011-20
SEC’s revenues are projected to grow 11.9% in 2011, 6.0% in 2012 and then at a CAGR of 4.2% during 2013-20 15
Let the falcon guide you
Valuation Assumptions
We assume that the increase in tariff will not have any cost implications and, hence, significantly increase SEC’s profitability
Margins
• We project gross margin to expand from 37.9% in 2010 to 39.3% in 2011, and operating margin to improve from 6.5% in 2010 to 7.3% in 2011
Beyond 2011, though, gross and operating margins are expected to decline to 34.5% and 3.7%, respectively, by 2020. In 2012, we project gross and operating margins of 38.2% and 5.4%, respectively • Purchased energy cost is assumed to increase from 15.0% of electricity sales in 2011 to 16.9% in 2020, as more energy will be bought instead of being generated internally • Depreciation as % of sales is forecast to rise from 30.1% in 2010 to 31.6% in 2016, given SEC’s significant capex plans. Post 2016, it is expected to decline to 29.9% in 2020 as capex slows (average life of power plant is assumed to be 25 years) • General & administrative (G&A) expenses as % of revenues are also forecast to decline 50 bps to 0.9% by 2020, driven by SEC’s restructuring program
Other income
Other income (consists of penalties, sales of tender documents, share in net income of investee companies* and others) is forecast to grow at 4% CAGR during 2010-20
Total SAR182Bn capex (47% of sales) during 2011-20; capex of SAR34Bn in 2011E and SAR36Bn in 2012E • Of the total capex, 94% is expected to for expansion, and the remaining 6% for maintenance
Capex
50% of the capex during 2011-13 to be funded through debt
* SEC holds equity investments in GCC Interconnection Authority and Water & Electricity Company
16
Valuation Sensitivity Analysis
Let the falcon guide you
20.0 17.0
14.8 14.0 10.1
10.1
10.9
16.2
16.2
Capex decreases by 5.0%
Bull Case
13.1
11.6
SAR 11.0
15.4
14.8
11.6
8.0 5.0 Bear Case
Capex increases by 5.0%
Growth in Rise in cost of Growth in generation purchased energy sold per capacity (%) energy (%) customer (%) decreases by - increases by decreases by 1.0% 1.0% 1.0%
Base Case
Growth in Rise in cost of energy sold per purchased customer (%) energy (%) increases by decreases by 1.0% 1.0%
Growth in generation capacity (%) increases by 1.0%
Bear case:
Base case:
Bull case:
Growth in energy sold per customer is 1% lower
Energy sold per customer increases by 2% in 2011 and 2012
Growth in energy sold per customer is 1% higher
Rise in cost of purchased energy per GWh is 1% higher
Cost of purchased energy per GWh increases by 3% per annum
Rise in cost of purchased energy per GWh is 1% lower
Growth in SEC owned generation capacity is 1% lower
SEC-owned power generation capacity increases by 4% in 2011 and 2012
Growth in SEC owned generation capacity is 1% higher
Capex is 5% higher than assumed
Capex of SAR34Bn in 2011 and SAR36Bn in 2012
Capex is 5% lower than assumed
Source: Al Mal Capital analysis
17
SEC – Financial Statements Income Statement
Let the falcon guide you
Income statement (SAR Mn) Total Revenue Growth (%)
FY09A 23,851 7.0%
FY10A 27,860 16.8%
Gross Profit Margin (%)
(15,208) 8,643 36.2%
(17,292) 10,568 37.9%
(316) 8,327 34.9%
(382) 10,186 36.6%
(7,515) 812 3.4%
(8,380) 1,806 6.5%
Other Income Profit before tax Provision for Zakat *
357 1,170
473 2,279
0
Net income
Cost of Sales Gross Profit
General and Administration Expenses EBITDA EBITDA Margin (%) Depreciation of Property and Equipment EBIT EBIT Margin (%)
Net Margin (%) Absolute dividend Payout Ratio (%) Earnings per share (SAR) Dividend per share (SAR) – Absolute Dividend per share (SAR) – Paid to public * SEC paid no Zakat due to the negative adjusted net income and Zakat base
FY11F 31,184 11.9% (18,942) 12,242 39.3%
FY12F 33,055 6.0% (20,436) 12,620 38.2%
FY13F 34,969 5.8% (22,094) 12,875 36.8%
FY14F 36,874 5.4% (23,207) 13,667 37.1%
FY15F 38,848 5.4% (24,998) 13,850 35.7%
(427)
(436)
(444)
(450)
(454)
11,815 37.9% (9,529) 2,285 7.3%
12,183 36.9% (10,395) 1,788 5.4%
12,431 35.6% (11,039) 1,392 4.0%
13,217 35.8% (11,607) 1,610 4.4%
13,396 34.5% (12,133) 1,263 3.3%
0
477 2,763 0
506 2,294 0
535 1,928 0
565 2,174 0
595 1,857 0
1,170 4.9% 547 47%
2,279 8.2% 547 24%
2,763 8.9% 547 20%
2,294 6.9% 547 24%
1,928 5.5% 547 28%
2,174 5.9% 547 25%
1,857 4.8% 547 29%
0.28 0.13 0.70
0.55 0.13 0.70
0.66 0.13 0.70
0.55 0.13 0.70
0.46 0.13 0.70
0.52 0.13 0.70
0.45 0.13 0.70
18
Let the falcon guide you
SEC – Financial Statements Balance Sheet
Balance sheet (SAR Mn) Shareholders' Equity
FY09A 49,175
FY10A 50,658
FY11F 52,873
FY12F 54,621
FY13F 56,001
FY14F 57,628
FY15F 58,938
Long Term Liability Long Term Debt Government Loan Corporate Bonds(Sukuk)
67,297
85,083
6,512 14,938 12,000 33,848 49,619
10,632 18,688 19,000 36,762 55,131
102,663 26,152 18,688 19,000
121,444 44,247 18,688 18,500
133,276 54,867 18,688 18,500
142,320 63,404 18,688 17,800
149,695 70,230 18,688 17,100
828 47,351 1,440 166,091
1,189 49,540 4,402 190,872
38,822 60,421 1,329 54,267 4,825 215,957
40,009 64,290 545 58,545 5,199 240,354
41,221 70,370 1,461 63,295 5,614 259,647
42,428 73,838 1,461 66,485 5,892 273,786
43,677 78,716 761 71,616 6,340 287,349
(30,625) 22,048
(34,637) 26,536
3,883 10,586 5,623 1,956 144,043
7,231 9,965 5,705 3,635 164,336
2,353 109,109 366 32,215 166,091
2,297 135,635 366 26,038 190,872
(38,685) 27,430 7,023 10,174 6,249 3,984 188,527 2,320 159,803 366 26,038 215,957
(41,925) 25,918 4,099 10,784 6,742 4,293 214,436 2,343 185,689 366 26,038 240,354
(45,576) 32,066 8,733 11,409 7,289 4,636 227,581 2,366 198,811 366 26,038 259,647
(47,825) 34,545 9,993 12,030 7,656 4,866 239,241 2,390 210,447 366 26,038 273,786
(51,799) 37,262 11,105 12,674 8,247 5,235 250,087 2,414 221,270 366 26,038 287,349
Other long term liabilities Current Liabilities Current Portion of Long Term Debt Accounts Payable Accruals & Other Payables Total Liabilities and Equity Working Capital Current Assets Cash and cash equivalents Accounts receivables, net Inventories, net Prepaid expenses and other current assets
Non Current Assets Equity Investments Property, Plant and Equipment Loans to subsidiaries Construction work in progress Total Assets
19
Let the falcon guide you
SEC - Financial Statements Cash Flow Statement
Cash flow statement (SAR Mn) Operating Activities
FY09A
FY10A
FY11F
FY12F
FY13F
FY14F
FY15F
Net Profit after tax Depreciation Change in Provisions
1,170 7,515
2,279 8,380
2,763 9,529
2,294 10,395
1,928 11,039
2,174 11,607
1,857 12,133
106
537
35
161
166
159
172
Company’s share in net income of associates Other adjustments
(34) 1,612
0 0
0 2,060
0 1,187
0 1,212
0 1,207
0 1,249
Changes in operating assets & liabilities Cash Flows from Operating Activities
14,793 25,162
5,807 17,003
4,013 18,400
3,079 17,116
3,485 17,830
2,091 17,238
3,801 19,213
Investing Activities Change in investments
(1,159)
1,036
(23)
(23)
(23)
(24)
(24)
Addition to property, plant and equipment
(30,596)
(28,381)
(33,698)
(36,281)
(24,161)
(23,243)
(22,956)
Loan to subsidiary
(366) (32,120)
0 (27,345)
0 (33,721)
0 (36,304)
0 (24,184)
0 (23,267)
0 (22,980)
9,136
15,231 (540) 14,691
16,812 (547)
11,535 (547)
7,836 (547)
5,426 (547)
Cash Flows from Financing Activities
(527) 8,609
15,660 (547) 15,112
16,264
10,988
7,289
4,879
Net change in Cash and Cash Equivalents
1,650
4,349
(209)
(2,924)
4,634
1,261
1,112
Cash and Cash Equivalent at end of the year
2,883
7,231
7,023
4,099
8,733
9,993
11,105
Cash Flows used in Investing Activities Financing Activities Net movement in interest bearing loans Dividend paid to equity share holders
20
Let the falcon guide you Key ratios Profitability ratios Gross Margin EBITDA Margin EBIT Margin Net Profit Margin Return on Average Assets Return on Average Equity Liquidity ratios Cash conversion cycle Leverage ratios Net Debt/Equity (%) Valuation ratios P/E x P/Sales x EV/EBITDA x Dividend Yield Du Pont Analysis Net margin Asset Turnover Financial leverage RoE
SEC – Financial Statements Ratio Analysis FY09A
FY10A
FY11F
FY12F
FY13F
FY14F
FY15F
36.2% 34.9% 3.4% 4.9% 0.8% 2.4%
37.9% 36.6% 6.5% 8.2% 1.3% 4.6%
39.3% 37.9% 7.3% 8.9% 1.4% 5.3%
38.2% 36.9% 5.4% 6.9% 1.0% 4.3%
36.8% 35.6% 4.0% 5.5% 0.8% 3.5%
37.1% 35.8% 4.4% 5.9% 0.8% 3.8%
35.7% 34.5% 3.3% 4.8% 0.7% 3.2%
(835)
(790)
(790)
(790)
(790)
(790)
(790)
31.4%
46.6%
74.6%
108.4%
118.0%
126.1%
130.6%
48.6 2.4 8.7 6.6%
25.0 2.0 9.7 4.8%
20.6 1.8 8.4 5.1%
24.8 1.7 8.1 5.1%
29.5 1.6 8.0 5.1%
26.2 1.5 7.5 5.1%
30.6 1.5 7.4 5.1%
4.9% 14.4% 3.38 2.4%
8.2% 14.6% 3.77 4.5%
8.9% 14.4% 4.08 5.2%
6.9% 13.8% 4.40 4.2%
5.5% 13.5% 4.64 3.4%
5.9% 13.5% 4.75 3.8%
4.8% 13.5% 4.88 3.2%
21
Let the falcon guide you
Institutional Sales Jalal Faruki
+971 4 360 1103
Akram Annous
+971 4 360 1113
Research Irfan Ellam
+971 4 360 1153
Disclaimer: This report is not an offer to buy or sell nor a solicitation to buy or sell any of the securities mentioned within. The information and recommendations contained in this report were prepared using information available to the public and sources Al Mal Capital believes to be reliable. Al Mal Capital PSC does not guarantee the accuracy of the information contained within this report and accepts no responsibility or liability for losses or damages incurred as a result of investment decisions taken based on information provided or referred to in this report. Any analysis of historical facts and data is for information purposes only and past performance of any company or security is no guarantee or indication of future results. Al Mal Capital PSC, or its “related group companies” (which may include any of its branches, affiliates and subsidiaries) or any director(s) or employee(s) of the said companies, individually or collectively, may from time to time take positions or effect transactions related to companies mentioned in this report. Al Mal Capital PSC and its related group companies may have performed or seek to perform investment banking or any other financial or advisory services for the companies mentioned in this report. 22
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